UPDATE 2-Riksbank chief says Swedish FX reserve plan breaches EU law

Reuters Staff

3 Min Read

(Adds financial markets minister comment)

STOCKHOLM, June 13 (Reuters) - A Swedish government proposal to reduce the size of the country's currency reserves may violate EU regulations and encroach on the independence of the central bank, Riksbank Governor Stefan Ingves said on Tuesday.

The centre-left government proposed in March reducing the central bank's foreign currency reserves by around 200 billion crowns ($23 billion) and use the money to pay off the country's sovereign debt.

Several Riksbank board members have spoken out against the minority government's plan, saying it could leave insufficient buffers to deal with a future financial crisis and pose risks to the economy.

Ingves, who is expected to step down at the turn of the year after more than a decade as Riksbank chief, slammed the plans again in a parliament hearing on Tuesday and also raised the issue of whether the proposal is in line with EU law.

"As far as I can judge, it is designed in such a way that it violates EU regulations, it encroaches on the independence of the Riksbank and it makes it harder for us to handle financial stability," he said in a parliament hearing.

"All in all, this is not a well thought through proposal."

Financial Markets Minister Per Bolund told reporters after the hearing that the government disagreed with the view the proposal would breach EU law and that it would never put something forward that contravenes current legislation.

"Our analysis shows it is very much in line with EU law," Bolund said. "We have made thorough analyses and we have extensive legal expertise within the government."

The Riksbank boosted its currency reserves after the 2008-2009 crisis to enable it to provide emergency liquidity for Sweden's outsized banking system, which has assets of around four times the country's gross domestic product.

Under the government's plans, the debt office would be tasked with raising foreign reserves if needed in case of a crisis.

"That creates two currency reserves, one at the debt office and one at the Riksbank, which de facto creates two central banks in Sweden," Ingves said.